Double Taxation Relief for companies - repayments of foreign tax
The measure
Currently, where a company has claimed double tax relief (DTR) and the amount of foreign tax paid changes, the company is obliged to notify HMRC and amend its claim accordingly.
The Chancellor announced today that legislation will be introduced to deny DTR, or withdraw it where a repayment of tax has already been made, regardless of who receives the payment (ie where the repayment of foreign tax is made to a foreign subsidiary or permanent establishment of a UK resident company).
Who will be affected?
Companies that seek to claim DTR in relation to foreign tax suffered on dividends where tax has been repaid by the foreign tax authority. The announcement suggests that a number of taxpayers currently adopt this position.
When?
The measure is intended to have effect from 22 April 2009.
This is principally an anti-avoidance measure designed to preclude certain cross-border structures reliant on advantageous DTR claims. Given that the Foreign Profits changes announced today should mean that most dividends are exempt from tax after 1 July 2009, this measure may be more relevant to existing structures. The language used in the press notice indicates that HMRC's view is that the law already achieves the desired result, but clearly this is not shared by all taxpayers.
